Appendix

Managing Risk

Introduction
Risk management: The act or pratice of dealing with risk
Risk management focuses on:
Known unknowns
Proactive management
The alternative to proactive management is reactive
management, also called crisis management. This
requires significantly more resources and takes longer
for problems to surface.
Risk management focuses on the future
Risk and information are inversely related
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Introduction
Historically, we focused our attentions on schedule
and cost risk management.
Today, our primary emphasis is on technological
risk management:
Can we design it and build it?
What is the risk of obsolescence?

Definition Of Risk

Risk

= f(Likelihood, Impact)

event

Likelihood is the probability of occurrence

Impact is the amount at stake

Tolerance For Risk

Risk avoider
Risk neutral
Risk lover

Decision-Making Categories
Complete uncertainty
Relative uncertainty (partial information)
Complete certainty

Developing and Using Payoff Tables

Establishing the
procedure to follow
Construct the
Payoff table
Decision-making
under certainty

Decision-making
under complete
uncertainty

Decision-making
under risk

Maximin Approach
Maximax Approach
Minimax regret Approach
Insufficient Reason Approach
Expected Monetary Value (EMV) Approach
Expected Opportunity Loss (EOL) Approach
Expected Value of Perfect Information (EVPI) Approach

Five steps to develop payoff table

1. List all the alternatives.
2. List the future consequences of each
alternative.
3. Identify the payoffs associated with each
combination.
4. Assess the degree of certainty that these
combinations will materialize
5. Decide on a decision criterion.

Risk Management Process

Risk planning
Risk assessment
Risk identification
Risk analysis/quantification

Risk handling
Risk monitoring

Risk Planning
Risk planning: Process of developing and
documenting interactive strategy and methods for
identifying risk issues, developiing risk handling plan
and monitoring how riskd have changed
Is a program of action:
Develop and document an organized, comprehensive
and ininteractive risk management strategy
Determine the methods to be used to execute the
risk management strategy
Plan for adequate resources
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Risk Assessment
Risk assessment: Process of identifying and
anlyzing program areas and critical process risks to
increase the likelihood of meeting cost, performance
and schedule objectives.

Risk assessment components

Risk identification: Process of Identifying all

potential risks: cost, funding, schedule, contract
relationships, technical and political risks
Risk anlysis: Process of examine each identified
risk issue to estimate the likelihood and predict the
impact on the project (Cost-Schedule-Technical
Evaluation)
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Risk Handling

Risk handling: includes specific methods and

techniques to deal with known risks, identifies who is
responsible for the risk issues, and provides an
estimate of the cost and schedule with reducing the
risk

Options for handling risk:

Risk assumption/retention
Risk avoidance Mitigating
Risk control/prevention
Risk transfer

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Which Method to Use?

Project Procedural
Documentation

Rigid
Policies/
Procedures

Avoidance
Transfer
Reduction
Assumption

Guidelines
High

Low
Tolerance for Risk

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Risk Monitoring
Risk monitoring: process of systematically tracking
and evaluating the performance of risk handling actions
and providing inputs to updating risk handling strategies

Some techniques suitable for risk monitoring:

Earned Value (EV)
Program metrics
Schedule performance monitoring
Technical performance measurement (TPM)

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Prioritization of Risks
Schedule

Cost

Technical
Performance
or Quality

First
(Highest)
Priority
Second
Priority
Third
Priority
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Classroom Activity 12a

Evaluate your organisations ability to manage

risk.

What can you do to improve the way you

manage the risk of projects.

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Questions?

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